Strategies in working capital management, Managerial Accounting

No further banks were the sole source of funds for working capital requires of the business sector. At current more finance options are obtainable to a Finance Manager to allow smooth functioning of his or her firm. Depending on the risk exposure of business, two strategies are developed to manage working capital.

Conservative Working Capital Strategy


Figure: Aggressive Working Capital Strategy

A conservative type current asset financing strategy would use for more long-term finance that decreases the risk of uncertainty related with regular refinancing. The price of the firm has to pay for adopting of such strategy is higher financing costs, as long-term rates will usually exceed short term rates. However when that an aggressive strategy is adopted, occasionally the firm runs defaults and in mismatches.

This is the cardinal principle of corporate finance such long-term assets must be financed through long-term sources and short-term assets through a mix of long and short-term sources.

Posted Date: 4/9/2013 3:15:50 AM | Location : United States

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